Neo-Luddites Dragging Down Demand and Recovery

January 24, 2013
By

If only the Neo-Luddites in the U.S. would get their heads out of their rear-ends and stop dragging the U.S. economy down, our economic recovery would have a very good chance of staging a remarkable comeback.

Lord knows that  the people of the eurozone are doing their part. Even facing  severely ill-timed austerity measures, I have to say that I’m surprised at their resilience. There is absolutely no way the people of this country at this time would survive the level of economic pain that austerity has unnecessarily forced on southern Europe and the UK. And the very same people who are screaming for smaller government and less spending would be crying the loudest if we tried.

Absolutely essential however, is that there’s a need for economic growth to begin in Europe or investors will continue to avoid eurozone bonds like the GOP avoids feelings of compassion or integrity. Without growth, jobs rates worldwide will continue to flounder, demand will continue to wane, China inventories will continue to accumulate, and the ill-timed austerity, (and stubborn refusal to admit that it’s ill-timed) in the UK and eurozone will continue to undermine the gains President Obama has managed to wring out of the U.S. economy despite GOP obstructionism and weak-kneed support from Congressional Democrats .

And This Is What the GOP Wants For the U.S.?

Due to continued intractability in the face of all indications that austerity is choking the life out of any possible means of growth, the eurozone is facing negative growth (retraction of its economy) for 2013. As a matter of fact, The WEO just recently downgraded its 2013 growth projection for the eurozone from an anemic, albeit positive, 0.3 per cent to a contraction of 0.2 per cent (-.2%).  Its projection for world growth was 3.5 per cent, down 0.1 per cent from its October forecast. Those are not good numbers and will make President Obama’s task of squeezing growth out of thin air (GOP obstructionism) in his second term as hard or harder than it was in his first term.

Just to illustrate what a good job President Obama has done with the economy–with NO demand from Europe or the UK and despite the obstructionism from the GOP–Spain’s unemployment rate soared to its highest level since measurements began in the 1970s as a prolonged recession and deep spending cuts left almost 6 million people out of work at the end of last year.

Spain’s unemployment rate rose to 26 percent in the fourth quarter of 2012, or 5.97 million people, the National Statistics Institute said on Thursday, up from 25 percent in the previous quarter and more than double the European Union average.

Spain is not like Greece, whose entire economy is equal to approximately Delaware’s. Spain is the twelfth largest economy in the world and was rocked by the same type of real estate crisis that the U.S. suffered.  Joblessness has been particularly acute for Spain’s youth, with 60 percent of people under the age of 25 unemployed in the fourth quarter. Italy, Portugal, Ireland, and the rest of southern Europe are not faring much better, and Greece; well Greece is in a league of their own.

However, if we go back a year and look at the prospect of a disorderly Greek exit, leading to the euro’s possible implosion, (the central subject of debates between banksters, investors and policymakers meeting in Davos for the annual World Economic Forum) things could be worse; but not by much.

Twelve months on, however, the euro is still standing and has regained ground against the dollar and the Swiss franc, after European Central Bank head Mario Draghi showed in the summer he was determined to prevent a breakup of the 17-nation currency.

“The single biggest factor that has contributed to changing the investment outlook is obviously Mario Draghi and the stance of the ECB,” said David Novak, a partner with Clayton, Dubilier and Rice, one of the oldest U.S. private equity firms.

Novak, who expects 2013 to be a transition year for Europe, said his firm would continue to look for investments in businesses with strong exports located in Britain and northern Europe. But more evidence of long-term stability was needed to make deals in southern Europe attractive, he added.

Austerity Bites

The ECB’s pledge to buy unlimited quantities of bonds–similar, but not the same as the quantitative easing The Federal Reserve has been performing by buying U.S. Bonds at bargain prices and that so many conservatives have been wrongly denouncing as sure to lead to hyperinflation–of weaker nations has led to the near-halving of Italian and Spanish borrowing costs from their euro crisis peaks, with some fund managers beginning to sample the waters of hard-hit sovereign bonds after months of absence.

But the prospect of prolonged, austerity-led stagnation in the region is making confidence in places like Italy, Spain, Germany, Portugal and Greece still unpalatable for many long-term overseas investors.

There simply is no global demand for goods and services with China’s inventories rising, The U.S. mired in a GOP-induced “stagnation by obstructionism” strategy that was meant to bring about the downfall of President Obama’s quest for a second term, not improve the economy.

As any first-year Economics major (if passing) can tell you, with no demand comes no growth. With no growth comes stagnation and fewer new jobs. And a wide swath of world-wide economists is skeptical about U.S. politicians’ ability to break the anchor of GOP obstructionism that is a constant drag on the American economy.

Both the Federal Reserve in the U.S. and the ECB in Europe have given the respective economies breathing room to lead a return to a path of growth, but many say economic retrenchment in these countries is simply too aggressive. Monetary policy can aid in a recovery, but proper, consistent, and properly-timed fiscal policy is needed to bring it to fruition. I do not believe that the majority of Congressional Republicans nor Americans understand the damage that ill-timed austerity does to a recovery.

Loss of Focus or Just Another Lie?

Despite the GOP’s promises of a focus on jobs in the wave of 2010 successful runs for Congressional seats, the House GOP has, instead, wasted the few hours they actually work ( 129 days in 2012, a projected 126 days in 2013) repealing ObamaCare 33 times (despite no possible chance of it passing the Senate), re-naming 40 post offices, and performing social engineering to diminish abortion rights, gay rights, women’s rights, and any other minority’s rights  in order to pacify their wealthy donors and their addictions to their egos and their personal pampered life-style. 

At the state levels, the GOP is pushing hard to literally change the dynamic of democracy’s foundation…that a majority of votes wins. Through the use of gerrymandering, Democrats in key states won the popular vote by wide margins but lost representatives.  

Even as recently as this week, the Associate Press reported that  The Virginia House snuck through a gerrymandering bill to redraw Virginia’s voting districts while a key Democrat in the House was attending the inauguration of President Obama.

These types of underhanded tricks may play well to the base of low information voters that the GOP has come to represent, but it erodes the faith of investors that America can get on with the business of finding a way to foment a period of growth which would alleviate most of the GOPs red herring deficit concerns.

It remains to be seen if the Democrats have the political will to combat the blitzkrieg of obstructing, gerrymandering, and falsifying to bring about meaningful and lasting growth.

If they do not, and the obstructionism at the federal level , voter suppression and gerrymandering at the state levels continue to take hold, then the GOP will eventually be able to enact the very same austerity measures in the U.S. that has taken Europe and the UK backwards into deep and destructive recessions/depressions.

To paraphrase a term from a bygone era of prosperity and SURPLUS…It’s the Demand Stupid!

Harvey A. Gold

 

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